Goldman loses bid to end lawsuit by hedge fund over CDO

Fri Oct 19, 2012 6:55pm EDT
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(Note: Language in paragraph 14 may be offensive to some readers)

By Karen Freifeld

NEW YORK (Reuters) - A judge refused to dismiss a $1.07 billion lawsuit against Goldman Sachs Group that accuses it of selling risky debt that it intended to lose value to an Australian hedge fund, causing the fund to become insolvent.

New York state Supreme Court Justice Shirley Kornreich denied Goldman Sachs' bid to toss claims of fraud, unjust enrichment and negligence, among others, by the Basis Yield Alpha Fund.

The fund accuses Goldman of making false and misleading statements in connection with the sale of securities to offload toxic subprime mortgages from its books.

Goldman has argued the losses were caused by the collapse of the housing market.

The fraud claims survive for the "big picture of fraudulent conduct," not only on the representations in the complaint, Kornreich wrote in her decision, citing a similar case in Manhattan federal court against Goldman by Dodona I, LLC, a hedge fund that invested in another CDO.

Michael DuVally, a spokesman for Goldman Sachs, declined comment Friday.

"We're very pleased the court agrees with us that Goldman needs to answer for its conduct," said Washington, D.C., attorney Bruce Grace, a partner in Lewis Baach, who represents the fund.   Continued...

Traders work at the Goldman Sachs stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid